Wintrust Financial Q3 2026 Earnings Call Transcript
Wintrust Financial (NASDAQ:WTFC) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Wintrust Financial Corporation reported a seventh consecutive quarter of record net income, reaching $239 million, up from $234 million in the previous quarter.
The company’s strategic initiatives focused on enhancing customer experience, disciplined growth, and investing for the future, including the acquisition to grow its guardianship services business, which is expected to boost wealth management revenues.
Total deposits increased by approximately $1.3 billion, with loan growth of roughly $1.1 billion, and net interest income improved by $24.2 million to $621.6 million, despite a slight decline in the net interest margin by 1 basis point to 3.51%.
Noninterest income decreased slightly due to lower mortgage banking revenue and security gains, while noninterest expenses remained stable with a slight increase to $405.7 million.
Loan growth was broad-based across commercial real estate, life loans, and residential mortgage loans, with total loans increasing by $4.7 billion year-over-year.
The company plans to redeem $108 million of high-rate debt in the fourth quarter, which is expected to contribute to cost savings.
Management expressed confidence in continued loan and deposit growth in the mid to high single digits for the fourth quarter, with a stable net interest margin and strong capital position.
Wintrust Financial outperformed the Illinois and U.S. banking industry on deposit growth, gaining market share in its core Illinois market with a 9.2% year-over-year increase.
Full Transcript
OPERATOR
Welcome to Wintrust Financial Corporation’s third quarter and year-to-date 2026 earnings conference call. A review of the results will be made by Tim Crane, President and Chief Executive Officer; David Dykstra, Vice Chairman and Chief Operating Officer; and Richard Murphy, Vice Chairman and Chief Lending Officer. As part of their reviews, the presenters may make reference to both the earnings press release and the earnings release presentation. Following their presentations, there will be a formal question and answer session.
During the course of today’s call, Wintrust management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The Company’s forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the Company’s most recent Form 10-K and any subsequent filings with the SEC.
Also, our remarks may reference certain non-GAAP financial measures. Our earnings press release and earnings release presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure. As a reminder, this conference call is being recorded. I will now turn the conference over to Mr. Tim Crane.
Tim Crane (President and Chief Executive Officer)
Good morning and welcome to Wintrust’s third quarter 2026 earnings call. In addition to those Lateef introduced, I’m joined by Chief Financial Officer Dave Stoehr and Chief Legal Officer Kate Boge. I will begin with a brief overview of the quarter; Dave Dykstra and Rich will provide a deeper look at the key results and I’ll be back to share some final thoughts before we open to your questions. In the third quarter, we recorded our seventh consecutive quarter of record net income. Net income was $239 million, up from $234 million in the prior quarter. Net income and net interest income growth continue to be a function of a stable margin and solid core business growth. Both loans and deposits were up nicely during the quarter in line with our historical results and our expectations for the quarter. Our efficiency ratio improved and we continue to generate operating leverage as expenses remain appropriate relative to revenue growth.
To generate these results, we continue to deliver on our three key strategic priorities: to deliver an exceptional and differentiated customer experience, to pursue strategic and disciplined growth, and further build out our foundation by investing for our future. On September 1, we closed the previously announced acquisition to grow our guardianship services business. This transaction will help boost wealth management revenues and income going forward.
We also opened four new branches during the quarter with two others opening this month. They’re all off to a good start in terms of deposit gathering and growing new Wintrust households. These new branches help fill in our Midwestern footprint as we continue to deliver our high-touch, high-tech approach to meeting customer banking needs. In fact, the latest FDIC deposit market share data shows that Wintrust outperformed both Illinois and the U.S. banking industry on deposit growth. To be more specific, in our core Illinois market, Wintrust continued to gain market share, growing deposits 9.2% year over year, more than double the state’s 4.4% growth rate and well above the U.S. industry average of 5.2%. We remain well positioned in Wisconsin and West Michigan as well, with plenty of growth opportunities in all of our markets.
Growing core deposits remains the single most important thing we do to enhance the value of a franchise and to ensure our continued success. Overall, I’m pleased with our results this quarter. Another consistent quarter of solid performance driving continued value for our shareholders. Let me turn it over to Dave for more on what drove our results.
David Dykstra (Vice Chairman and Chief Operating Officer)
Great. Thanks, Tim. Let me start with the balance sheet. Both loans and deposits grew at an annualized rate of 8% for the third quarter relative to the prior quarter. Total deposits were up approximately $1.3 billion during the quarter, which funded solid third quarter loan growth of roughly $1.1 billion. Yields and rates on major balance sheet categories were essentially flat with the prior quarter. We were particularly pleased that, given the strong deposit growth during the quarter, interest-bearing deposit costs were actually down one basis point, matching the one basis point decline in loan yields.
I would note that period-end loans were approximately $822 million higher than average loans for the third quarter, giving us a great start to achieving a higher level of average earning assets in the final quarter of 2026. Turning to the income statement results, this was a very solid operating quarter, producing another record level of quarterly net income. Net interest income improved by $24.2 million compared to the second quarter of 2026 to $621.6 million. The improvement in net interest income was primarily the result of an increase of $2.1 billion in average earning assets, which was offset slightly by a 1 basis point decline in the net interest margin, which was 3.51% for the third quarter.
The 1 basis point decline in the net interest margin was caused by the impact of having one additional day in the quarter. Interest rate changes and business mix changes essentially netted to no impact on the margin. The net interest margin has remained in the range of 3.50% to 3.59% during the last 11 quarters, showing the sustainability of this metric, and given our balance sheet structure and our established interest rate hedging positions, we believe that our interest rate sensitivity should continue to remain relatively neutral even with a few rate cuts in either direction.
The provision for credit losses continued to remain relatively consistent with prior quarters, staying in the $20 to $30 million range for the seventh consecutive quarter, as the overall credit environment and our asset quality has remained stable. Turning to other noninterest income and noninterest expenses, total noninterest income was $136.3 million in the third quarter, which was a decrease from the $141.3 million recorded in the prior quarter.
This roughly $5 million decline was primarily a result of $1.9 million of lower mortgage banking revenue as higher rates weighed on mortgage loan originations and approximately $3.5 million less security gains and losses, as the unrealized gains in the second quarter swung around to unrealized losses in the third quarter. As to noninterest expense categories, noninterest expenses were consistent with our expectations noted during our second quarter conference call and totaled $405.7 million in the third quarter, up $8.1 million from the prior quarter. The second quarter included a $5.2 million reversal of an accrued FDIC insurance expense related to the final accrual of the previously imposed special assessments by the FDIC. So if we adjust for that reversal, expenses were up only $2.9 million from the prior quarter and reflect smaller levels of increases in a variety of other expense categories to support the continued growth of the company.
Additionally, the net overhead and efficiency ratios have remained relatively stable through the first nine months of the year, helping the company produce solid operating leverage thus far in 2026. In summary, I’ll reiterate what Tim said. This was another very solid and consistent operating quarter. The company achieved strong loan and deposit growth, a relatively stable net interest margin, another record level of net income, and a continued low level of nonperforming assets. In addition to the operating performance, I’ll add one additional comment regarding the planned use of cash in the fourth quarter. The company has already or intends to redeem seven issuances of our trust preferred securities, which are shown on our balance sheet as junior subordinated debentures.
The redemptions will total approximately $108 million and will retire higher-priced floating-rate debentures that on average have a spread to 3-month SOFR of approximately 309 basis points. So some of our highest rate debt will be retired during the fourth quarter. So with that I’ll conclude my comments and turn it over to Rich to discuss credit.
Richard Murphy (Vice Chairman and Chief Lending Officer)
Thanks, Dave. As detailed on slide 7 of the investor presentation, third quarter loan growth was strong and broad-based. The three primary drivers were $690 million in core commercial real estate loan growth, reflecting both new lending opportunities and funding of previously committed loans, $226 million in growth in Wintrust life loans, and $153 million in residential mortgage loan growth. Every lending segment recorded positive growth during the quarter.
On a year-over-year basis, total loans increased by $4.7 billion, or 9%. Turning to credit quality, slide 15 details continued strong performance across our portfolio. Nonperforming loans decreased slightly from $179.3 million, or 0.32% of total loans, to $176.9 million, or 0.31%, and remained at very manageable levels. Charge-offs were 15 basis points for the quarter, up slightly from the prior quarter, and continue to reflect a stable and benign credit environment. That assessment is further supported by the historical nonperforming asset trends on slide 16 and the consistent levels of special mention and substandard loans on slide 15.
This quarter again demonstrates our commitment to identifying problems early and charging down loans where appropriate. Our goal, as always, is to stay ahead of potential credit challenges. As we’ve noted on recent calls, we remain highly focused on our commercial real estate exposure, particularly in light of potential higher interest rates in the environment. As detailed on slide 19, this portfolio continued to perform well during the third quarter. CRE nonperforming loans declined from 12 basis points to 9 basis points. Charge-offs of 2 basis points in the second quarter shifted to 5 basis points of recoveries in the third quarter.
Overall, customers have remained resilient despite continued uncertainty around the geopolitical environment, interest rates, inflation, and the broader economy. We continue to see healthy activity across our markets and client conversations reflect cautious optimism about the business environment. These close relationships provide valuable real-time insights into changing conditions, while our disciplined risk management approach positions us well as the economic environment continues to evolve.
That concludes my comments on lending and credit, and Tim, I’ll turn it back to you.
Tim Crane (President and Chief Executive Officer)
Great. Thank you, Rich. Just some final thoughts as we close out the year. Our targets remain unchanged for the fourth quarter based on continued positive feedback from clients, solid pipelines, and the unique market position we occupy. We expect loan and deposit growth in the mid to high single digits. We’ve consistently funded our loan growth with appropriately priced deposits and we expect that to continue in the fourth quarter. The net interest margin should remain stable, plus or minus 3.5%.
We believe that any further rate increases will result in loan yields and deposit costs moving roughly in concert and accordingly should not materially impact the margin. That said, as our loan book is largely variable priced, increases in SOFR or other loan index rates in advance of a rate increase or market factors that moderate increases in deposit cost could be supportive of a slightly higher margin. Our capital position remains strong and increased during the quarter. The capital priorities we have discussed on prior calls remain unchanged. As always, our team focuses on delivering the exceptional customer service that is our key differentiator going into 2027. We feel good about our competitive position in the market, our ability to continue to grow our business, and to deliver value for our shareholders. With that, Lateef, could you please open the line for questions?
OPERATOR
As a reminder, to ask a question, you will need to press star-11 on your telephone to remove yourself from the queue. You may press star-11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Armstrong of RBC Capital Markets. Your line is open, John.
John Armstrong (Analyst at RBC Capital Markets)
Hey, good morning.
Tim Crane (President and Chief Executive Officer)
Nice job. Thanks, John.
John Armstrong (Analyst at RBC Capital Markets)
Yep. Maybe Tim or Rich. Let’s just start with the lending pipelines. You know, Rich, anything else you can share in terms of what you’re seeing in terms of the pipelines, whether they’re strengthening or not, and then maybe help us understand the CRE growth a little bit more this quarter. I know you touched on it in your prepared comments, but what drove that?
Richard Murphy (Vice Chairman and Chief Lending Officer)
Sure, yeah, pipelines are good, John. I mean, we’ve said this really for the last few calls. You know, it’s, I think it’s indicative of the economy that’s holding together pretty well. But we continue to have a really nice position in our market, both in Chicago, but Michigan, Wisconsin all seem to be taking market share pretty nicely. And so as long as we can continue to execute on that, the pipelines are going to reflect some pretty good numbers.
So if I look down the major categories, I mean CRE shows pretty good momentum there. C&I, we’ve had some really nice wins here over the last couple quarters and that continues to show up in the pipeline. So, you know, again, feel pretty good about that. Now, you know, we don’t know where the economy is going to go and, you know, where things will happen. But generally speaking, as I look at the pipelines, you know, we feel good. As it relates to the CRE, I mean, CRE for the quarter is a little bit of a timing issue. If you look back at last quarter, we were just over 100 million in total funding, so if you add those two quarters together, they kind of come in right where the last four quarters are, which is right around 300 million or around 9%. And as I look at what funded during the third quarter, we had a number of larger owner-occupied and strong investor-type deals that we feel good about.
The thing about real estate too for us is that these are not transactional deals. These are very much relationship-oriented deals that, if I look at the names that we funded in the third quarter, are people that we’ve been doing business with for a long time. So in general it’s more just, it’s a timing issue more than anything else.
John Armstrong (Analyst at RBC Capital Markets)
Okay, thanks on that. And then maybe Dave or Tim, appreciate the comments on the variable rate loans. It’s what I thought. But the other side of it, can you just comment a little on the deposit pricing environment? You obviously had a very nice quarter on deposit costs and just maybe help us understand the drivers of the deposit growth and how you were able to hold those costs steady.
Tim Crane (President and Chief Executive Officer)
Yeah, John, thanks. We do feel good about the deposit growth. Probably a little more commercial than retail, but the Chicago and both West Michigan and Milwaukee markets are largely rational. We see promotional pricing, 4 or low 4s. We continue to win business at those levels. We started to get a little bit of a lift from the new branches we’ve opened. We’ll get more of that in the fourth quarter and continued build-out of our commercial franchise as well.
So a nice mix of deposits, many of them interest-bearing. But we controlled the interest-bearing deposit costs well during the quarter and overall feel like we did a very nice job during the quarter.
John Armstrong (Analyst at RBC Capital Markets)
Okay, thank you.
OPERATOR
Thank you. Our next question comes from the line of Daniel Tamayo of Raymond James. Your line is open, Daniel.
Daniel Tamayo (Analyst at Raymond James)
Thank you. Good morning everyone. Maybe the other side of the deposit question. So certainly a really nice quarter on overall deposit growth. But the non-interest bearing came down a bit on the period-end basis. Average has been trending up, but I guess as a percentage of overall kind of down below that 19%. I don’t know if I’d call it a bogey or not, but seems like it’s just kind of trending down. Just curious your thoughts on the ability to hold that number at or close to that level, or if you’re not as concerned with it given kind of the overall level of deposit costs and deposit growth that you’ve been getting.
Tim Crane (President and Chief Executive Officer)
Well, I think it’s both, Danny. You know, we’re growing the denominator rapidly and doing that at a reasonable cost. So we’re comfortable that we continue to build the franchise and happy with those results. You know, that said, we very much would like the non-interest bearing to stay around 19% and we’ll work to do that. But the mix comes to us as our customers dictate at times and just kind of look at it on an overall basis.
David Dykstra (Vice Chairman and Chief Operating Officer)
Yes. And Danny, this is Dave. I do think you pointed to the average balance. I do think you need to look at the average balance a little bit more than point in time because monies flow in and out, sometimes a quarter-end, and make that move around a little bit. But the average balance is trending up, which shows we’re gaining. Most of that is commercial obviously. And so we’re gaining middle-market and small business accounts and we think we’ll keep doing that.
But we’re fortunate that we have to fund good loan growth. And if you fund that higher loan growth, you generally have to do some of that with interest-bearing deposits more so than DDA. And so we’ll try to hold that number there. But it’s a good problem to have.
Daniel Tamayo (Analyst at Raymond James)
Agreed, and thanks for your thoughts on that. Maybe just a high-level question, have you been seeing any impact? Sounds like pipelines are really strong, but with the rate increase in September and then we’ve got another one probably coming soon and maybe some more next year. Any early indications that that’s impacting borrowers at all? And do you guys think that would potentially impact your ability to grow loans as fast as you’ve been growing them?
Tim Crane (President and Chief Executive Officer)
We can speculate on that, and my guess is it will have some impact. Certainly borrowing costs in the CRE space are a big driver, but at this point we don’t see that. And if you think back about the last four quarters and really beyond that, you know, the Midwest economy that we pretty much lend into has been amazingly resilient. I mean, so whether it’s been tariffs or increased rates or transportation costs or whatever those shocks have been, they’ve continued to work their way through it.
And our customers kind of reflect that same attitude, you know, that they will, you know, those might be impactful, but they think that they can manage through it. So at this point I wouldn’t anticipate it would have a meaningful effect.
David Dykstra (Vice Chairman and Chief Operating Officer)
Yeah, I might just throw on there, you know, 80% of our loans reprice or mature within a year. And the short end of the curve was 50 basis points higher in June of last year, so prime was 50 basis points higher than where we are now. And our production was very good at that point in time. So as Rich said, you’ll have to see what happens with the economy and the shape of the curve is a little bit different, but we still think these rates are good for new business development.
Daniel Tamayo (Analyst at Raymond James)
Great. Well, thank you for that color.
Tim Crane (President and Chief Executive Officer)
Appreciate it.
OPERATOR
Thank you. Our next question comes from the line of Ben Jerlinger of Citi. Your line is open, Ben.
Ben Jerlinger (Analyst at Citi)
Hey, good morning.
Tim Crane (President and Chief Executive Officer)
Morning, Ben.
Ben Jerlinger (Analyst at Citi)
Just wanted to help. You just said Dykstra, but whoever wants to take it, go for it. Like, if you have like roughly a year ago rates being lower as we drift into early ’27, the repricing aspect seems like it’s a pretty big tailwind. So I get that the floating rate runs with SOFR. You guys have been really, really, really good on deposit pricing. Why are we not talking like a bias higher on the margin, or maybe we are? Are you just maybe giving yourself a little rope here on deposit pricing?
Because like you said, mix is not always in your control.
David Dykstra (Vice Chairman and Chief Operating Officer)
Yeah, I would say, you know, we do have the swaps in place that hedge part of that floating-rate SOFR portfolio. But I would say that in a rising rate scenario, as Tim said in his comments, if deposit rates lag a little bit as they historically do when rates go up, which our competition is doing, and then if SOFR gets out ahead of Fed increases, that would put us to a bias to the upside of the 3.50%, plus or minus a few basis points, and then over time, all else being equal, you will have your premium finance books reprice over time, but you also have some CDs repricing over time.
So I think you’re right. In an up-rate environment, we have a slight bias to an increased margin, but a lot of moving parts there.
Ben Jerlinger (Analyst at Citi)
Got it. That’s helpful. And then as you kind of think about the branch expansion, it’s good to hear the early progress. Is there something we should look for? Is it more NIB deposits? Is this a very similar mix? I’m just trying to think like branches should equal what kind of correlation towards overall deposits.
Tim Crane (President and Chief Executive Officer)
I mean, given our overall size with more than 210 branches, I don’t think the five or six that we talked about are going to be trajectory changing. But we continue to add households, we continue to add retail deposits, and we, as you know, focus on deposits as the core of our franchise. And so we’re filling in in communities that we would like to have been in, we’re building in adjacent communities, and I would just view it as kind of normal progress.
I don’t think you’re going to see major changes, but it will contribute to the deposit growth over time.
Ben Jerlinger (Analyst at Citi)
Gotcha. That’s really helpful.
Tim Crane (President and Chief Executive Officer)
Appreciate it.
OPERATOR
Thank you. Thank you. Our next question comes from the line of Nathan Race of Piper Sandler. Your line is open, Nathan.
Nathan Race (Analyst at Piper Sandler)
Hey, guys, good morning. Thanks for taking the questions. Hey, Dave, on slide—I’m sorry, page 21 of the release. Just looking at the sensitivity to rates going up, it looks like it became a little bit more of a headwind to NII. Could you just unpack maybe some of the assumption changes that went into that? And just curious, within that context, it looks like you guys added more downside protection to rates going up. So just curious if you kind of unpack why the sensitivity to higher rates increased or was more detrimental relative to at the end of June.
David Dykstra (Vice Chairman and Chief Operating Officer)
Yeah. One of the things I’ll note in that table is that it assumes instantaneous change of deposit rates. And to the extent we can lag deposit rates, that would actually probably bring that 2.9% to more of a neutral position. And so we assume our competition is going to move quickly in our models, but to the extent that the market moderates a little bit and deposit betas take time to get up to the full amount, then that will benefit us. So this is a conservative view of the world and really the impact of that is deposit lagging.
Nathan Race (Analyst at Piper Sandler)
Okay. So it’s just kind of conservative beta assumptions, which isn’t necessarily what you guys are seeing. Relative to Tim’s comments around some of the rational deposit pricing competition you’re seeing these days. Is that a correct interpretation?
Tim Crane (President and Chief Executive Officer)
I think that’s a good way to summarize it.
Nathan Race (Analyst at Piper Sandler)
Okay, great. And then maybe Rich or Tim, just curious if you can comment on what you’re seeing from a loan pricing perspective. You know, to the earlier question, a good amount of growth on the CRE side in the quarter. But you know, just curious what you’re seeing in terms of coupons on loan production in the third quarter relative to kind of the portfolio yield these days, around 6.06%.
Richard Murphy (Vice Chairman and Chief Lending Officer)
You know, we’ve talked about this in the past, Nate, where we saw just a lot of competition out there, particularly on fully funded CRE loans. And I think it’s still very competitive, but some of that downward pricing pressure I think has stabilized a little bit. When it’s a really good credit and you get lots of deposits still, people are fighting very hard over it. But at this point, I think people are generally focused on getting reasonably paid, given the where we’re at in the market and the potential risks out there, but we like to kind of be in that 6.5 range when we’re looking at opportunities.
And if we can’t get appropriately priced in a decent relationship with it, we’ll pass on it.
Nathan Race (Analyst at Piper Sandler)
Gotcha. That’s really helpful. I appreciate all the color, guys. Thank you.
OPERATOR
Thank you. Our next question comes from the line of Terry McAvoy of Wells Fargo. Your line is open.
Tim Crane (President and Chief Executive Officer)
Terry, hi.
Terry McAvoy (Analyst at Wells Fargo)
Thanks. Good morning. Maybe just start. Dave, a question for you. Could you provide any insight into fourth quarter expenses with a normal FDIC expense and then the deal that closed and also if you’re willing to discuss kind of early thoughts on 2027 expense growth?
Dave Stoehr (EVP – CFO)
Yeah, well, the FDIC recovery was the second quarter, so the third quarter here was a pretty clean quarter for us. I’d expect it to be roughly the same in the fourth quarter, you know, plus or minus, just a hair. So I think we will be able to hold the expenses fairly consistent in the fourth quarter. And then, you know, we have said this for years now in a row, that probably without the impact of any acquisitions into the equation or a big jump up in the mortgage business, that we would expect expenses generally to grow in the mid single digits each year if we’re getting that mid to high single digit loan growth.
So I think we’ve been consistent quarter after quarter, year after year here with those forecasts. And given what we see right now, I think that’s probably still a consistent way to look at us going forward.
Terry McAvoy (Analyst at Wells Fargo)
Great, thank you. And Tim, maybe just a question for you on scale. When I look at the Chicago MSA, you’re now surrounded by these trillion dollar plus banks which you, as we see today, continue to outperform from a growth perspective as a $75 billion bank today, do you need more scale for that trend to continue over the medium term?
Tim Crane (President and Chief Executive Officer)
No, I don’t. I don’t think so. Our relationship model and our presence in the market and our ability to differentiate with service will continue, you know, regardless of size. I think on the technology front, we’re well positioned from Treasury Management Services and Wealth Services to compete effectively. I don’t see scale being a limitation, you know, given where we are right now.
David Dykstra (Vice Chairman and Chief Operating Officer)
And I’d probably add to that, I think it’s a benefit to be surrounded by those banks because we can provide better service and take market share. If you look at the deposit market share, that slide that we put in on slide 22 of the deck, you know, we grew our market share more than those banks and a number of the big banks actually lost market share. So I think our relationship style of banking against the big guys is what we’ve always done for 30 years, very effectively.
So I think it’s actually good for us.
Terry McAvoy (Analyst at Wells Fargo)
Perfect. Thank you very much.
OPERATOR
Thank you. Our next question comes from the line of Casey Hare of Autonomous. Please go ahead.
Casey Hare (Analyst at Autonomous)
Yeah, great, thanks. Good morning everyone. One more on the deposit side of things. It all sounds kind of right in line, but just longer term. When we look back at the last cycle, the interest bearing deposit beta was 66% on a cumulative basis and 53% on a total. Is there anything that would this cycle that would change those kind of numbers or is that, is that still the expectation?
Dave Stoehr (EVP – CFO)
No, I think if you’ve gone through a number of different cycles, 60 to 65% has sort of been the beta on the ways up and the way down. And we would expect that to behave similarly on the way up here.
Casey Hare (Analyst at Autonomous)
Gotcha. Okay. And then. Great, thank you. And then the M&A outlook. Just some updated thoughts on what you guys are seeing in your markets from an opportunity point of view.
Tim Crane (President and Chief Executive Officer)
Yeah, still some conversations, mostly smaller banks. I would suggest exploring their options in an environment that still feels like a pretty good time to exit. If that’s your plan. I would say larger size conversations have been few and far between. You bet.
Casey Hare (Analyst at Autonomous)
Thank you.
OPERATOR
Thank you. Our next question comes from the line of David Chiavarini of Jefferies. Please go ahead. David, hi.
David Chiavarini (Analyst at Jefferies)
Thanks for taking the questions. So, circling back to loans. So solid trends overall. I was curious on your thoughts when with premium finance, P&C and it being a softer market, could the headwinds here potentially lead to the lower end of the mid to high single digit as we look out over the next 12 months? Or could the pipelines on the C&I side make up for it?
Tim Crane (President and Chief Executive Officer)
I think, yeah. I mean it is softer, but we would still think that we would see positive, positive growth in deal sizes next year, albeit not at the same level that we used to see because of that softening in the market. But we’re still taking share. We continue to, I think, be a premium provider in that space. Our technology, the investments that we make allow us to continue to take market share. So I’m optimistic there that we’ll continue to see that class continue to grow in line with that mid to high single digits.
But it depends on where those markets go. But I’m pretty optimistic about that business right now.
David Chiavarini (Analyst at Jefferies)
Great, thanks for that. Then on the capital front, does the increase in AOCI this quarter impact how you manage the business at all, such as tapping the brakes on loan growth or does it not impact, you know, the loan front or anything else at all?
Tim Crane (President and Chief Executive Officer)
Yeah, I don’t think it affects our ability to continue to do business. I mean, our long term approach is to add franchise value by adding clients. You know, you can tell from the way we’ve positioned the balance sheet for interest rates that, you know, we are very neutral and want to continue to grow. You know, there’s been a little bit of a recovery since the end of the quarter and so some of the AOCI change, we’ve probably recovered, but it’s one quarter, it’s not a major element.
David Chiavarini (Analyst at Jefferies)
Very helpful. Thank you.
OPERATOR
Thank you. Our next question comes from the line of Janet Lee of TD Cowen. Please go ahead. Janet.
Janet Lee (Analyst at TD Cowen)
Good morning.
Tim Crane (President and Chief Executive Officer)
Morning, Janet,
Janet Lee (Analyst at TD Cowen)
Sorry for asking on the same topic, but if you were to assume 60% ish beta on your interest bearing deposits, I mean, that would imply a significant uptick in deposit costs over the near term. But that doesn’t really square away with what you saw in the third quarter at least. And then your commentary around deposit competition, maybe you’re referring to the cycle or cumulative beta over time. Could you talk on like the. Are you able to share that the spot deposit cost as it stands today?
Dave Stoehr (EVP – CFO)
Yeah, so I was talking through this, the cycle that 60 to 65 is the beta that we see through the cycle. You know, initially I think we generally see close to, you know, 40%, so 10 basis points of the 25, and then it works its way up over time. So spot rates were just slightly higher, 4 or 5 basis points higher than the average for the third quarter. But that, you know, that 40% initial beta or 10 basis points would then eventually work its way up to 60, 65% through the cycle.
Janet Lee (Analyst at TD Cowen)
Right. And you’re referring to the interest bearing deposits. Thank you. On the resi mortgage piece, you’ve been consistent even in the third quarter. You’ve been consistently growing that category pretty nicely in the current backdrop, which is pretty impressive. Do you expect this line category to continue increasing from here? Just given where the rates are,
Tim Crane (President and Chief Executive Officer)
I think it’s a little bit seasonal. Janet, we clearly think we will benefit from some of the, what I would characterize as refinance shops or independents that haven’t survived the cycle. And so our share of the mortgage business, whatever that is, should be higher. And we believe that mortgages are a core component of our offerings. So I think the market will drive that. But as we’ve said for several quarters, it’s a pretty tough market right now and the financial changes that you’ll see over the next few quarters probably won’t be very material.
As we’ve said in the past too, about half of the mortgage related revenue is related to servicing. So it’s just not a big impact anymore at this level.
Dave Stoehr (EVP – CFO)
Yeah. And on the balance sheet, which you might be referring to, we, you know, at 100, 200 million a quarter and they’re generally our customers in our footprint and ones that we like to do and you know, works well within our asset liability positioning also. So probably that that will grow gradually but not dramatically.
Janet Lee (Analyst at TD Cowen)
Got it. And if, if I can squeeze out one quick one, the back book repricing for the premium finance, that negative impact to NIM is still about a basis point in the fourth quarter at that set.
Dave Stoehr (EVP – CFO)
No, what we talked about last quarter is that the 1 basis point impact was impacting the third quarter and so we should be done in the third quarter. And now rates are going up, so we should start to see that actually start to benefit and price up.
Janet Lee (Analyst at TD Cowen)
Great, thank you.
OPERATOR
Thank you. Our next question comes from the line of Chris McGrathy of KBW. Your line is open, Chris. Oh, great.
Chris McGrathy (Analyst at KBW)
Good morning, Tim or Dave. No one’s asked the buyback question. You’re generating a lot of capital, more than you’ve ever done. You have the helper from Basel 3. Does that become more of the narrative even with the growth that you expect in the 27?
Dave Stoehr (EVP – CFO)
Yeah, I think it could, Chris. I mean we said when we get north of 10 and a half we would start to more materially look at other options. As you know, even at ten and a half, we feel like we’re very well capitalized, you know, from a risk adjusted basis. So I think fourth quarter and into 2027, we will be looking at other ways to deploy capital in the same order and sort of with the same priorities we’ve talked about on prior calls.
Chris McGrathy (Analyst at KBW)
Okay, helpful, thank you. And Dave, I know the mortgage market isn’t all that great right now, but what’s any near term expectations for mortgage contribution relative to recent levels?
David Dykstra (Vice Chairman and Chief Operating Officer)
No. Fourth quarter tends to be a soft quarter generally and with the bump up in rates, I would expect that to continue. So, you know, originations in our markets in the winter months tend to be lower generally and I would just expect it to continue to be soft. But as Tim said, you know, half of that revenue, 10 to $11 million of it, is servicing income. So we’ll see where originations are. But you know, probably low 20s, maybe just $20 million plus or minus for the fourth quarter just because of the rates and the seasonality.
It can’t go much lower. I mean there’s a certain amount of purchases that just occur because people move or have other life events going on, and I think we’re sort of close to that bottom. But it doesn’t materially, if you think about it, it doesn’t materially impact the bottom line after you take that revenue and back off commissions and other expenses and things, taxes. So we’re going to stay in the business. We’re committed to it to serve our customers. We’re just going to be as efficient as we can and wait for the rates to rebound and get more of the market share as Tim referred to earlier.
OPERATOR
Thank you. Our next question comes from the line of Jeff Rulis of D.A. Davidson. Your line is open, Jeff.
Jeff Rulis (Analyst at D.A. Davidson)
Appreciate it. Thanks. On the—you guys have covered the margin pretty well. I just wanted to check in, Dave, the impact from that higher rate sub debt retiring—is that, sounds like that is immaterial or a slight positive? Just want to check in on the general margin outlook with that piece.
Dave Stoehr (EVP – CFO)
Yeah, think about it. It’s $100 million on, you know, a $76 billion balance sheet. So it’s not a big impact. But, you know, maybe it adds one basis point to the margin, but most of that, you know, it pays off during the quarter. A lot of it pays off on the last day of the quarter. So it’s not going to have much of an impact in the fourth quarter.
Jeff Rulis (Analyst at D.A. Davidson)
Okay, got it. And then another kind of granular question, just looking at the premium finance life insurance—had a little uptick in the nonperforming loan balance. Loss rates historically very, very low. So just checking in on that, if that’s any indication on anything on credit within that segment.
Dave Stoehr (EVP – CFO)
No, I think if you look at it, it’s in the over 90 and still accruing. From time to time we have administrative past dues and we don’t see any loss in that. But if you go back, we have one of those every now and then. It’s just administratively we work on deals to accommodate customers or for whatever other reason, and so we don’t think there’s anything there.
Jeff Rulis (Analyst at D.A. Davidson)
Okay, appreciate it. And maybe if we could squeeze one last one in—just the market share tables, appreciate those. The minor tick down in Michigan in terms of deposit market share, would you relate that to kind of the deal that you did and finding your footing, and then expect to grow from there? Any comment on the Michigan market.
Tim Crane (President and Chief Executive Officer)
Yeah, I mean as you know, these are a little bit dated. They reflect the data as of June in the prior year. So you would have some conversion-related activities. I think I’d look at it over the two-year period, and we continue to have very good momentum in Michigan and feel great about the opportunities there. So I don’t think there’s anything to read into that.
Jeff Rulis (Analyst at D.A. Davidson)
Okay, thank you.
OPERATOR
Thank you. Our next question comes from the line of Jared Shaw, Barclays. Your line is open, Jared.
Jared Shaw (Analyst at Barclays)
Thanks. Good morning. I guess maybe just on the deposit side, any color around the growth that we saw in the quarter in the wealth management remix and what we can expect from that line with the acquisition closing now?
Tim Crane (President and Chief Executive Officer)
Yeah, I mean we feel good about our wealth management business and have kind of seen it moving in the right direction in 2026 and expect that that will continue in 2027. The guardianship deal brings a very, very small number of deposits. That’s not going to affect the number very materially there. But we continue to view the wealth business as an opportunity and have good traction in all of our markets.
Jared Shaw (Analyst at Barclays)
Okay, thanks. And then just going back to the margin and the bias of plus or minus a basis point—I guess what would have to happen for you to be more comfortable with a higher margin here in the next few quarters? It feels like deposit costs are lagging. You still have the tailwinds from premium finance. You have the little bit of benefit from the sub debt. What would keep you back from being more optimistic on margin?
Tim Crane (President and Chief Executive Officer)
Just the competitive environment is really the biggest, Jared. I mean, just don’t know what we’re going to see. Again, we feel pretty good about pipelines, and our MO has been a relatively stable margin and then grow the business to produce more net interest income and franchise value. So, you know, we’re hopeful that we get a little bit of help here, but we’re not counting on it.
Jared Shaw (Analyst at Barclays)
Okay, thank you.
OPERATOR
Thank you. Our next question comes from the line of Bernard Von Gasicki of Deutsche Bank. Your line is open. Bernard.
Bernard Von Gasicki (Analyst at Deutsche Bank)
Hey, good morning. Just from the guardianship services business—it added the $1.2 billion AUM. What was the revenue and expense impact in the quarter? And just a bigger question, you know, what kind of investments are needed to integrate into your franchise, and any color on expectations on AUM fees and efficiency ratio for the business.
Tim Crane (President and Chief Executive Officer)
Yeah, we haven’t disclosed all of it yet, Bernie, but you’re right, we brought over $1.2 billion of assets under management related to that business. We were in that business already, so we didn’t bring over their technology. We put the business on our systems, so it just gave us better leverage and gave us a better market position, especially in the Chicago market area, for those services. So we think it’s just a nice addition to our wealth management business.
And from a revenue perspective generally—again, we haven’t disclosed the details—but our guardianship business, to get you sort of in the ballpark, generally it’s about a 1% fee range, plus or minus. So if you take a billion two at 1%, it should get you in the range of the additive revenue.
Bernard Von Gasicki (Analyst at Deutsche Bank)
And then maybe just on the deposit market share. Obviously great presence in the Illinois market, but the strategic importance in Wisconsin, Indiana, Michigan—is there, from those three, where do you see the biggest market share opportunity outside the Chicago area?
Tim Crane (President and Chief Executive Officer)
I don’t know that we would handicap any of the three against each other. They have their own elements and, in some ways, different competitors we’ve talked about in the past. Michigan and Wisconsin have more credit unions—sort of makes the numbers a little bit harder to look at—but we feel good and would intend to grow in each of the markets. The branches we’ve opened, a couple were in Indiana; one that opens, you know, this quarter is in Wisconsin.
So again, we’re not going to do anything crazy. We’re disciplined with respect to pricing, but we do add households, and small business activity is good, wealth activity is good, and these branches are nice fill-ins for us.
Bernard Von Gasicki (Analyst at Deutsche Bank)
Okay, great. Thanks for taking my questions.
OPERATOR
Thank you. Our next question comes from the line of Brandon Rudd of Stephens Inc. Please go ahead. Brandon, morning.
Brandon Rudd (Analyst at Stephens Inc.)
Thanks for taking my questions. So most of them have been asked. I guess just one follow-up on your comments earlier, Rich, on the CRE portfolio. I think your comment was that there was some funding, I’m not pushing the third quarter, that resulted in a stronger growth rate here. But when I look at the industrial portfolio specifically, going back really over the last year, it’s kind of been growing quarter in and quarter out. Can you kind of help characterize that—is that new customer growth, or is that existing customers investing more heavily?
Richard Murphy (Vice Chairman and Chief Lending Officer)
I’d say it’s a combination of both—getting new opportunities from, as we talked about before, bringing in customers from some of the other larger banks, but it’s also from longtime customers that, you know, have a lot of experience in that space. It’s an area that we’ve had a lot of success in over the years. We think we are pretty good at underwriting those opportunities and definitely an asset class we feel pretty good about, particularly with that type of sponsorship.
Brandon Rudd (Analyst at Stephens Inc.)
Got it. Okay. Thank you very much for taking my question.
OPERATOR
You bet. Thank you. Our next question comes from the line of Sumer Brazler of UBS. Your line is open, Sumer.
Sumer Brazler (Analyst at UBS)
Hi. Thanks. Good morning. One more follow-up for me on commercial real estate. First, if you can just provide any color on payoff activity and if that headwind has now largely abated, and then maybe triangulate your comments on focusing on CRE exposure in light of the rate hikes with some of the growth and what that might mean for future growth rates.
Richard Murphy (Vice Chairman and Chief Lending Officer)
Yeah, payoff activity was pretty consistent over the first three quarters. So there’s still borrowers who are going out to secondary markets, and there’s a lot of liquidity still out there. But I think you’re right. I think that what we would maybe anticipate here over Q4 and into next year is that you might want to hold onto a property for an existing loan for a little bit longer and then wait for the end markets to right themselves. So maybe that slows down payoff activity over the next few quarters—but to be seen.
So we haven’t quite seen that yet, but I would agree with you that that might be in effect. As it relates to CRE growth, we’ve always been very, very disciplined. I mean our portfolio mix is—we always talk about a third, a third, a third, which is a third C&I, a third CRE, a third niche businesses. Right now our CRE growth is actually less than that. Not to say that we want to fill that out to that level, but we’d like to have a nice balanced portfolio. CRE has always been a piece of that. But again, if you look at our performance over time, you look at the quality of the sponsors that we deal with, you look at the mix of different types of properties within that subset of CRE, we try to be very, very disciplined in that space.
We underwrite, I’d say, very conservatively. So while I would agree that as rates move up, you have to be very mindful of that, we like our positioning right now. We like our customers. We like that portfolio.
Sumer Brazler (Analyst at UBS)
Great. And then just, I guess from a competitive landscape, are you seeing anything that’s either stretching from a pricing standpoint or, more importantly, from a structural standpoint, from any of your competitors?
Richard Murphy (Vice Chairman and Chief Lending Officer)
Last quarter I got the question, where are we on the spectrum of competitiveness? And I would have said at that time we would definitely have been at the higher end of the curve. Seems to have moderated a little bit, maybe for some of the reasons that you touched on. But right now it’s competitive. As I said earlier in the call, if you have a well-structured, good credit that we are looking at, there’s going to be a lot of other people looking at it as well.
So you have to be thoughtful. But it’s got a hurdle and it’s got to bring relationship for us to have it make sense.
Sumer Brazler (Analyst at UBS)
Great. Thank you.
OPERATOR
Thank you. I would now like to turn the conference back to Tim Crane for closing remarks.
Tim Crane (President and Chief Executive Officer)
Sir, thank you, Lateef. And for those of you on the phone, always thank you for your questions. I know we’ll see some of you between now and the end of the year. For those that we don’t, on behalf of Dave, Rich and our team, we want to wish you the best for a safe and happy holiday season. Our team will be focused on finishing the year strong. We anticipate carrying our momentum into 2027 and hopefully we’ll do some celebrating, too. Thank you for joining us on the call today.
Have a great rest of the day.
OPERATOR
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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